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Venture-capital investors, apparently spooked by declining returns over the past ten years, raised less money for investment in early- and mid-stage startups in 2010 and flocked to late-stage startups.

Funding available for startups was down 14 percent in 2010, to $11.6 billion, from $13.5 billion in 2009, according to a report by Dow Jones. 119 funds raised money for investing in startups last year, compared to 133 funds in 2009.

Despite some positive activity in the exit market, it looks like investors are still less willing to take significant risks on early- and mid-stage startups that haven’t found some significant traction yet. Exit activity was up 25 percent in 2010 when compared to 2009, but the average size of each exit was lower than what was paid out before the recession began in earnest in 2008.

Eight late-stage funds — geared toward startups that have already seen some success and become established — accounted for $1.5 billion worth of venture capital investment last year. That’s up 68 percent from $887 million in 2009. Venture capital firms raised around $390 million for late-stage investments in the fourth quarter last year alone.

Multi-stage funds, which are a little more flexible and account for the majority of fundraising in 2010, raised $5.4 billion in 2010. Venture capital fundraising was still down 26 percent, from $7.3 billion in 2009. That’s largely a result of most major firms downsizing their funds, such as Menlo Ventures’s $400 million fund that’s about a third the size of its earlier funds.

Early-stage investment funds raised $4.8 billion across 73 funds. Fundraising for early-stage investment funds was down 12 percent from $5.5 billion in 2009. A sizable chunk of last years’ early-stage investment fundraising can be attributed to Andreessen Horowitz’s latest fund, which racked up $650 million, in part on the promise of partner Marc Andreessen’s deftness with picking early-stage startups. But Andreessen Horowitz invests across a range of startup sizes, including its blockbuster investment in Skype.

The other sizable chunk of early-stage investment fundraising came from angel investors turning to venture funds, according to the report. Angel investors are wealthy individuals that are typically responsible for a company’s first batch of seed funding or institutional fundraising. Angel funding has become increasingly popular lately — so much so that the SEC is even reconsidering its rules for disclosure of funding by angel investors.

But with exit activity increasing, 2011 looks better for venture capital funds. A survey conducted by Dow Jones indicates that most venture capital firms and angel investors plan to push additional funding into startups this year. More than half of them expect venture-capital funding to pick up this year. It looks like cloud computing, which lets developers offload programs that require heavy-duty computing firepower onto remote servers and deliver the results through the Internet — will help usher the venture buzz back in this year, according to the report.

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